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No spin doctor in the house?

Aspen’s pricing scandal jolts investors

Price gouging fine is made public, while a report finds scant evidence that a ‘moral code’ is applied in its business dealings

20 April 2017 - 10:42
Ann Crotty

Stephen Saad: How will his team handle this potentially explosive issue? Picture: BLOOMBERG/WALDO SWIEGERS

Aspen Pharmacare made headlines in the British press over the weekend for failing to disclose a €5.2m fine in 2016 for "price gouging" — essentially hiking prices to a level considered exploitative.

But the company’s belated response left much to be desired. Aspen’s response has been simply to highlight how small a part of its entire portfolio the drugs at the centre of this scandal really are.

These oncology drugs generated turnover of €60m (R963m) in the 2016 financial year, Aspen said, which amounted to just 2.7% of its R35.6bn in revenue for last year. It was a bland stock exchange announcement that failed to engage with the issue, instead hiding behind the skirts of a claim that the matter was sub judice.

Little wonder that on the first day of trading after the media reports of the not-so-new allegations, the Aspen share price slumped 4.14% to R268.50, close to a 12-month low for the former darling of the investment community.

Aspen, in the words of the report, ‘pays little more than lip-service to building moral DNA in the organisation’

Waseem Thokan

Clearly Aspen is trying to make investors believe the matter is insignificant — and some investors might be persuaded.

Or perhaps not. Asief Mohamed of Aeon Investment Management, which holds Aspen shares, says it’s not about the quantum involved, but the reputational risk. "Part of management’s responsibility is making sure this sort of thing doesn’t happen and, if it does, that it communicates well with shareholders and the public," he says.

"Quite apart from possible regulatory contraventions, [their actions] could also be seen as immoral and unethical, which begs the question, has this price gouging been taking place with the group’s other products? It certainly could taint the group’s reputation," said analyst Sejal Joshi. This is particularly dangerous in a period of a "growing populist backlash in developing countries, including against the cost of health care".

Waseem Thokan, head of research at Legae Securities, is equally scathing. "We don’t expect Aspen to be a paragon of virtue, but we would have expected it to be more sensitive to this sort of situation, especially as it is currently one of the hottest public issues in developed markets," says Thokan.

Thokan isn’t surprised by the latest developments. Last month Legae, with Farsight research, released a report on the SA health-care industry, which placed Aspen among the worst performers in terms of leadership maturity.

The report is based on a detailed analysis of public information, in particular the companies’ integrated annual reports.

"At first glance many of our clients were surprised," says Thokan. "Aspen, in the words of the report, ‘pays little more than lip-service to building moral DNA in the organisation and there is scant evidence that a moral code is applied in its business dealings’."

The Farsight analysis describes how Aspen’s report makes the assumption that the reader already has confidence in leadership, and anything it declares must be believed.

"Aspen fails to provide the level of context expected, considering the significance of product responsibility in this industry."

For years, Aspen has been on a frantic acquisition spree. But how CEO Stephen Saad and his team handle this potentially explosive issue will indicate whether the team has the skill to grow profitably in a post-acquisition era.

The Public Investment Corp, which is the single largest Aspen shareholder, also took shelter behind the "sub judice" rule and would not comment.

Foord Asset Management, with about 4%, was marginally more forthcoming. "This is not new information and we have noted the comments from both the press and the company, and we will continue to engage with management on the issues mentioned," it said.

From this, it appears that while Aspen made no public comment before Tuesday, some larger shareholders were kept in the loop.